Strategic Sector Selector - Have we got ourselves a recovery?

Equity markets have continued their upward march in Q3 led by the US and the technology sector. We believe that a tentative and fragile recovery is on the way, but fear that the rising number of COVID-19 cases will stop it in its tracks. However, the threat of an economic slowdown will spur central banks to keep monetary policy supportive and fiscal policy may respond with more stimulus to tide the economy over until we can get back to some sort of normality.
In our view, this is unlikely before the second quarter of next year even if a vaccine goes into production before the end of 2020. Nevertheless, we tentatively increase our allocation to cyclicals by upgrading industrials on the hope of higher infrastructure spending and a more benign trade environment, especially if Joe Biden wins the US presidential election. We also downgrade banks and upgrade financial services to align our model allocation to rates staying lower for longer. Our preferred cyclical remains technology and food, beverage & tobacco our preferred defensive.
Investment risks
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Important Information
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The opinions referenced above are those of the authors as of 30 September 2020 unless stated otherwise.
Where individuals or the business have expressed opinions, they are based on current market conditions, they may differ from those of other investment professionals and are subject to change without notice.